Spirits producers can raise their glasses high and toast industry growth in control states, which outpaced licensed states by volume and value in 2016. Trading-up trends had industry sales thriving in the 17 control states last year. “Consumers are buying more and buying up,” says Andy Deloney, chairman of the Michigan Liquor Control Commission. “The industry continues to premiumize and super-premiumize.”
Dollar sales of spirits in control states last year increased 5 percent on volume growth of 2.8 percent, according to the National Alcohol Beverage Control Association (NABCA). By comparison, overall spirits growth nationwide increased 2.4 percent in volume and 4.5 percent by value, according to the Distilled Spirits Council. Spirits volume growth in license states was estimated at 2.3 percent for 2016. Moreover, total control states’ spirits sales in 2016 surpassed 50 million nine-liter cases for the first time, according to NABCA/Impact Databank.
Of the top 10 spirits brands in control states, eight increased and two experienced minor declines. Tito’s Handmade vodka ($17.99 a 750-ml. in Pennsylvania) posted the highest growth rate in control states with a 57.8-percent advance to 937,000 cases. Bacardi Superior rum ($14.99 in Pennsylvania) experienced the biggest loss as it decreased 1.3 percent to approximately 1.4 million cases.
In all top-five control states—Michigan, Pennsylvania, Ohio, North Carolina and Virginia, which comprise 62 percent of total volume—the growth rate of dollar sales easily outpaced volume growth. “The most important trends in 2016 were the growth of new premium products brought to market and consumers’ continuation toward premiumization,” says Tim Holden, chairman of the Pennsylvania Liquor Control Board.
Trading-up trends shifted gears with double-digit growth from Irish whiskey and strong gains from American flavored whiskies, Cognac and Tequila. “Primarily the American whiskies and brandies have been the top growth drivers,” says Harry Knight, former superintendent of the Ohio Division for Liquor Control. “Those categories comprised about 44 percent of the growth in Ohio and continue to show strong trends. We also see a significant increase in the Irish whiskey category.”
The whisk(e)y renaissance in the United States continues to evolve, as does high-quality domestic vodka and the advent of domestic micro-distilleries. These trends, along with the never-ending consumer and industry infatuation with cocktails, appear strong in the control states as they keep pace with nationwide developments. “The craft cocktail movement is driving interest in all spirits and particularly in higher-end spirits,” says Jeffrey Painter, chairman of the Virginia Department of Alcoholic Beverage Control (ABC). “There’s also a movement toward craft distilleries, much as we have seen in craft brewing. Millennial consumers are looking for new products and are drawn to the authenticity that craft products offer.”
To keep up with industry growth trends and developments, control states are making significant investments in their infrastructures, technology systems and retail operations. For example, in Oregon—the No.-6 control state by spirits volume—14 new retail locations in the Portland metro area were selected last year to sell spirits, bringing the state total to 262 stores. This development helped quell the Liquor in Grocery Stores Initiative that proposed to privatize spirits sales in July 2017. Since 2011, when Washington became the first control state to privatize since the end of Prohibition, there have been major pushes to privatize in other states, particularly in Pennsylvania, but the issue appears to be on hold for now.
The trading-up trend was quite evident in North Carolina as total dollar sales increased 7.3 percent to eclipse the
$1 billion milestone for the first time, according to Robert Hamilton, administrator at the North Carolina Alcoholic Beverage Control Commission. Top brands included Tito’s vodka ($21.95 a 750-ml.)—which advanced 39 percent in volume—and flavored whiskies (up 10.7 percent), such as Fireball ($15.95 a 750-ml.), Crown Royal Regal Apple ($28.95) and Jim Beam Apple ($17.95). Flavored imported vodkas grew 2.8 percent, while flavored domestic vodkas decreased 1.7 percent. Branded moonshines in North Carolina were down 1.6 percent in dollar sales last year, a trend that Hamilton says will continue.
In Virginia, meanwhile, spirits sales jumped 5.9 percent in fiscal 2016 on a volume boost of 1.6 percent. During the first half of fiscal 2017, spirits sales in Virginia have risen 4.9 percent on a 3.2-percent volume bump. “Consumer trade-up to more premium products is occurring, especially in the whisk(e)y category,” Painter says. “Desire for high-end or super-premium Bourbons and rye whiskies continues, as is the case with craft brands from Virginia and elsewhere.”
Irish whiskey is experiencing tremendous growth in Virginia, with an approximately 20-percent increase in both volume and dollars year-over-year. Among other spirits, vodka’s growth remains strong in volume and dollar sales around 4 percent and 5 percent, respectively. Tequila experienced a double-digit advance in volume and sales.
Virginia’s expanding population has impacted spirits sales. A May 2016 Washington Post article stated Virginia’s population increased 35 percent from 1990 to 2015 to nearly 8.4 million people and is expected to grow 25 percent to more than 10.5 million by 2040. “Virginia’s economy saw substantial growth in 2016, as unemployment claims were the lowest in the state since 1973, dropping unemployment to 4.1 percent,” Painter explains. “Meanwhile, the labor force increased for the fifth consecutive month in December—allowing household employment to hit a record high.”
The Virginia ABC continues toward its goal of $1 billion in sales by the end of the 2018 fiscal year, and officials are undertaking the second phase of its website redesign. The upgrade will enhance e-commerce capabilities and online sales, including distribution of rare and highly sought-after products through refinement of an online lottery system. The web revamp includes providing expanded databases and portals, improving product selection, and maintaining a fresh mix through a quarterly listings process. The Virginia ABC also plans to open 13 new stores and renovate or relocate 10 others.
In many control states, micro-distilleries and their products continue to increase in numbers. At press time, there were 81 licensed micro-distilleries in Michigan, with about 25 applications awaiting review. “The expertise, installation, operation and maintenance of distilling machinery are a huge expense, but we are seeing more and more of it,” Deloney says.
Michigan is home to several successful micro-distilleries, such as Valentine Distilling Co. in Ferndale, New Holland Artisan Spirits in Holland and Traverse City Whiskey Co. in Traverse City. Products include Valentine vodka ($29.99 a 750-ml.), Valentine single barrel 7-year-old Bourbon ($89.99), New Holland Walleye rye whiskey ($34.99), New Holland Clockwork Orange liqueur ($24.99), Traverse City Whiskey Co. Bourbon ($32.99) and Traverse City Whiskey Co. barrel-proof Bourbon ($69.99).
In Ohio, micro-distilleries like Middle West Spirits and Watershed Distillery—both based in Columbus—are also experiencing strong sales. The number of micro-distilleries in Pennsylvania has grown from four in 2012 to around 60 currently.
Virginia has also seen rapid expansion of in-state distilleries—from 10 in 2008 to nearly 50 today, with more on the way. “Some Virginia spirits have seen robust sales growth in Virginia ABC stores, from $1 million in 2008 to $6 million in fiscal year 2016,” Painter says. “Virginia ABC currently carries 70 Virginia spirits products on a regular basis and many more through our special order process.”
Painter remains optimistic about the spirits industry in Virginia and expects continued sales increases in the retail and restaurant segments. “Primary reasons for confidence include a strong industry, effective advertising and promotions, growing online business, and high marks for customer service and retail operations,” he says.
Deloney of Michigan anticipates continued long-term spirits growth. “The suppliers are making investments and decisions, as they expect things are going to continue to do well,” he notes. “As our population expands and the suppliers churn out good liquid and interesting high-quality innovations at price points that people are willing to pay, it is going to continue to do well.”